According to Bloomberg, Volkswagen has postponed its profitability target by three years as the company faces sluggish sales and the costs of streamlining its bloated operations.
The report states that Volkswagen now aims to achieve a 6.5% operating profit margin by 2029, instead of next year. To counteract declining demand in the European and Chinese markets, the brand has cut production capacity and workforce. Data released on March 13 showed that Volkswagen's return rate dropped to 2.9% last year, its lowest level since 2020.
"We are facing and will continue to face significant challenges, including lower-than-expected growth in key markets and persistent inflation," Volkswagen Brand CFO David Powels said during an earnings call.
The decline in sales in China, coupled with increasing competition in Europe-where demand has not yet returned to pre-pandemic levels-has put considerable pressure on Volkswagen's profitability. Additionally, the pace of the brand's electric vehicle rollouts has also affected its earnings.
At the end of last year, Volkswagen Group CEO Oliver Blume reached an agreement with labor unions to improve the efficiency of the Volkswagen brand. The deal includes cutting production capacity at German plants by hundreds of thousands of vehicles and reducing the workforce by over 35,000 employees over the next five years. Volkswagen now expects its operating profit margin to exceed 4% this year and reach 5.5% by 2027.
Volkswagen is planning to launch several budget-friendly electric vehicles to attract European consumers. However, the first of these models, the ID. 2all, priced under €25,000, will not be delivered until next year. The brand is also pinning high hopes on the ID. EVERY1, a compact EV priced at €20,000, which is scheduled to be produced in Portugal in two years. Powels acknowledged that "for small cars, a 6.5% profit margin is a high target," but he remains confident that Volkswagen can achieve this goal by 2029.
In 2024, Volkswagen Group's revenue grew slightly by 0.7% year-on-year to €324.7 billion. However, operating profit fell by 15.4% to €19.06 billion, while the return on sales declined from 7.0% in 2023 to 5.9%. Net profit after tax dropped to €12.394 billion, down from €17.861 billion in 2023.
